As marriage rates continue to decline in the United States, unmarried couples may be looking to the IRS for an excuse to stay unhitched.
That's because in this day and age, love and marriage also go together with adverse tax consequences, attorney and tax planner Jeff Schnepper writes for MSN Money. Unmarried couples who cohabitate may end up paying less in taxes than married couples, Schnepper suggests.
How does that happen? The answers can be found in five of Schnepper's top tax reasons not to get married.
The "Marriage Penalty." This comes into play if a couple gets married and files jointly. Spousal income is pooled and taxed at the highest rate of one spouse, Schnepper says. For example, if two unmarried people each brought in taxable income of $83,600, they'd each pay about $17,000 in taxes. But if the couple were to get married, they'd owe more than $800 in additional taxes. The more a couple brings in, the larger the "marriage penalty," Schnepper says.
Social Security. Higher incomes also subject more of your Social Security payments to taxes. That means married couples with two incomes can get hit hard -- as much as 85% of a married couple's combined Social Security receipts may be subject to taxes, Schnepper says.
The Alternative Minimum Tax. Under our current tax system, you pay the higher of either your regular tax or the Alternative Minimum Tax (AMT). The AMT exemption for two unmarried people is $48,450 each, or a total of $96,900. But a married couple's exemption is only $74,450 -- a difference of more than $22,000. This results in higher taxes under the AMT for married couples, Schnepper says.
Deductions. Medical-expense and itemized deductions must be reduced by 7.5% and 2% of your adjusted gross income, respectively. So if your spouse brings in $100,000 a year, filing jointly will reduce your medical-expense deduction by $7,500. It would also cut $2,000 from your total itemized deductions. Married couples can consider filing separate returns to avoid this, Schnepper says.
Bush-era tax benefits. These benefits are set to return in 2013, and will reduce the deductions for personal exemptions. "Marry an individual with substantial income and potentially all of your personal exemptions disappear," Schnepper warns.
Of course tax laws are complicated, and they constantly change. You may want to consult a tax attorney to determine how your marital status may affect your taxes.